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Cablegate: Oil-for-Food Guidance and Action Request

VZCZCXYZ0010
OO RUEHWEB

DE RUEHC #4010 0421730
ZNR UUUUU ZZH
O R 111727Z FEB 08
FM SECSTATE WASHDC
TO RUEHGB/AMEMBASSY BAGHDAD IMMEDIATE 5610
RUCNDT/USMISSION USUN NEW YORK IMMEDIATE 0566
INFO RUEHLO/AMEMBASSY LONDON 4910

UNCLAS STATE 014010

SIPDIS

SIPDIS
SENSITIVE

E.O. 12958: N/A
TAGS: PREL ECON UNSC IZ
SUBJECT: OIL-FOR-FOOD GUIDANCE AND ACTION REQUEST

REF: USUN 0082

1. (U) This is an action request. Please see paragraph 4.

Background
----------

2. (SBU) Department has reviewed the January 23 letter sent
by SYG Ban updating the UNSC on the current status of the
Oil-for-Food (OFF) program. We are encouraged by the
progress made by the OFF Working Group meeting in Amman, at
which UN OFF experts and GOI ministries reviewed all
remaining OFF contracts and decided upon a course of action
for bringing these contracts to a close. Given this
progress, Department has no objection to allowing the GOI
until March 31, 2008 to resolve all remaining OFF contracts
as recommended by the SYG. However, it should be noted that
of the 210 remaining contracts (totaling approximately
$656,254,000), 114 (totaling approximately $384,982,000) are
contracts that require the GOI to produce the authentication
documents necessary to release payment before these contracts
can be paid and settled. The GOI has had more than four
years to settle these contracts and has been unable to do so.
The lack of progress by the GOI in generating the required
authentication documents has been noted in multiple reports
from the SYG to the UNSC and the Department remains skeptical
that the GOI will be able to resolve such a large number of
contracts by March 31. Additionally, per the SYG's letter,
the GOI has stated that there are 57 contracts (totaling
approximately $49,000,000) which the GOI does not believe can
be resolved bilaterally. The final status of these contracts
will most likely have to be resolved using a third party
arbiter.

3. (SBU) The establishment of an arbitration mechanism will
be an important motivator for the GOI to work quickly to
generate the documentation necessary to pay the suppliers
that have delivered goods to Iraq and complete the remaining
OFF contracts. Department is aware that there are some
concerns among UNSC members regarding the cost of
establishing an arbitration mechanism. We also understand
that the UK Mission to the UN has the lead on drafting the
letter to the SYG in response to his most recent update on
the OFF program.

4. (SBU) Action Requests:

For USUN: Department requests that USUN engage UN OFF experts
to determine the cost of establishing the SYG's recommended
arbitration mechanism, as well as the potential funding
source for the establishment and operation of the arbitration
mechanism (which we would expect to be OFF funds held in the
escrow account). Department recommends that USUN begin
negotiations with UKUN on the text of a reply letter and
requests that USUN forward a copy of the UK's draft letter
for Department clearance prior to its circulation in the
UNSC. Department is inclined to endorse an arbitration
mechanism, and asks the UN to begin moving forward with the
establishment of a mechanism as soon as possible, but would
first like to see further detail on the mechanism.

For Baghdad: Embassy Baghdad is requested to raise the issue
of GOI OFF contract completion and generation of the required
authentication documents with the appropriate GOI officials
and urge them to take the steps necessary to ensure that all
of the required documents are given to the UN by the March 31
deadline.
RICE

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